Phoenix Health Systems See Cost Increases for Expansion Projects
"Financing for construction projects has recently become far moredifficult in Phoenix as health systems confront the fallout of a deterioratingmarket for auction-rate securities," said Josh Kelley, market analyst forHealthLeaders-InterStudy and author of the report. "By refinancing, the resultis significantly higher costs for capital expenditures that could disruptplans for construction projects."
As of mid 2007, nine new hospitals were planned for construction inArizona, and expansions or renovations were planned at 23 hospitals over thenext five years. The wave of projects is in response to Arizona's shortage ofhospital beds per capita, an area in which the state ranks near the bottomnationally. A study released in 2007 and sponsored by the Arizona Hospital andHealthcare Association found that the state's hospitals planned to undertake$3.3 billion in construction between 2007 and 2011, increasing bed capacity by2,900, or 20 percent. In the southeast Valley alone, existing hospitalsalready have expansion plans to add more than 1,400 beds.
Health systems in metro Phoenix, including Banner Health and CatholicHealthcare West, are being forced to refinance these auction-rate securities,which are long-term bonds whose interest rates are based on auctions heldevery seven, 28 or 35 days, and switch to fixed-rate debt. Health systems witha strong balance sheet, including Banner Health, are riding out the creditcrunch without altering plans for construction projects. But health systems ina weaker financial position may be forced to cut back on capital expenditures.
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